So, you have done your homework on real estate investing and have concluded multi-family syndication is the way to go. You love the idea of double-digit returns passively & tax advantages from the ownership of physical assets, like real estate. In addition, multi-family syndication can provide geographical & asset class diversification while reducing your overall portfolio risk.
However, multi-family syndication may not be the right fit for everyone. We all have a varying degree of risk tolerance, different investment goals, and varying time horizons. Therefore, it is prudent to evaluate YOUR financial situation before investing in any real estate syndication.
Let’s move on to evaluate key factors to determine if real estate syndications may be a good fit for you.
Minimum Investment: Unless you are investing in a crowdfunding site, most real estate syndications require a minimum investment of $50,000.
Illiquid for hold period: Your investment in a real estate syndication may not be easily transferable or salable, which makes it an illiquid investment for the entire holding period.
Inconsistent Income: Many syndicated real estate investments vary by strategy to improve net income from operations. Some examples are: major renovation, heavy value add or development. Such projects are considered heavy lift and typically may not cash flow in the beginning or may not cash flow at all during the hold period. These projects can be highly profitable from a capital gain perspective and may not be a fit for income-seeking investors.
Passive Investment: The operations of real estate syndication is the responsibility of sponsors, general partners & property managers. As a limited partner, your investment is entirely passive. You likely won’t ever see the asset and will not be involved in any day-to-day decisions or have any control over the investment.
Investment Period: Most syndications have a hold term of five years or more, although it can be a little more or less.
Accredited Investor: Most sponsors require you to be an accredited investor to participate in the real estate syndications.
Multi-family syndication can be an attractive investment opportunity for investors who want to diversify their portfolio into real estate investments without having to deal with the headaches of being a landlord. These are passive investments that can offer great tax advantages and higher profits than you would get if invested in the S&P 500 Index or stock market. However, just like any other investment vehicle, real estate syndication has its pros and cons, so it’s important to engage in due diligence and carefully weigh the pros and cons before you commit. If you’re in the market for an opportunity that will take care of operational details while you focus on your personal goals, syndications may be worth exploring further.
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Happy Investing!